Shares of homebuilder KB Home (NYSE: KBH) jumped 9 percent Friday after the company reported third-quarter revenue and earnings that topped analyst expectations. Despite the positive numbers, KB Home stock already trades at a generous valuation, and analysts see limited upside for the stock from its current price.
KB Home reported third-quarter earnings per share of 51 cents on revenue of $1.14 billion on Thursday. Both numbers exceeded analyst estimates of 46 cents and $1.12 billion, respectively.
In addition, KB reported new-home deliveries of 2,765 compared to consensus estimates of 2,736.
Management also assured investors that the company suffered minimal effects from hurricanes Harvey and Irma. KB missed only 50 deliveries in Texas following Harvey’s landfall, and CEO Jeffrey Mezger said the company endured little damage from Irma as well.
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Mezger also took the opportunity to issue yet another apology to comedian Kathy Griffin after security cameras captured a bizarre confontation between the two neighbors. Mezger delivered an expletive-packed tirade, which included sexist and homophobic slurs, at Griffin after she issued a series of noise complaints against Mezger.
The KB Home board voted to dock Mezger’s 2017 bonus as punishment and said another incident would cost him his job.
“The board of directors has already taken action as the company has disclosed, and I and the KB Home team are fully focused on leading this company into the future,” Mezger said of the incident on the earnings call.
While KB investors reacted positively on Friday to the strong quarter, Wall Street analysts are not quite as enthusiastic about the stock’s long-term prospects.
The Buckingham Research Group analyst Mark Weintraub raised his price target for KB Home from $21 to $22 but expressed concern over the company’s balance sheet.
“We remain on the sidelines following a powerful run in the stock and would remind investors that, while the company has executed more consistently of late, KBH is still a dynamic transition story being pushed by relatively high financial leverage,” Weintraub says.
BTIG analyst Carl Reichardt Jr. says the stock’s valuation leaves limited room for upside.
“While KBH is making progress, our forward [return on equity] estimate does not support current valuation,” Reichardt says.
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Buckingham has a “neutral” rating on KB Home, while BTIG maintains a “sell” rating on the stock.
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KB Home (KBH) Doesn’t Impress Wall Street originally appeared on usnews.com
